Wednesday, February 15, 2012

Gold is a reflection that there is no other escape out of this problematic situation we are trapped in than printing money to prevent systemic collapse - Felix Zulauf, Swiss money manager

Everyone else is jumping on the Jeremy Lin promotional hype...why shouldn't I? But I'll poke at it from a slightly different angle. Maybe from the perspective you might get on CNBC if it were gold instead of a New York Knick basketball player with an Ivy League degree. Is the sudden meteoric media interest in Jeremy Lin a bubble?

One bubble the Government is definitely trying desperately to re-inflate is housing. Today it was reported that new homebuilder sentiment had reached a 5-month high of 29. Anything below 50 reflects overall poor sentiment but the media was spinning it into housing market Disneyland: "Builder mood best in years" - Marketwatch. Well here's a pin to prick that bubble-attempt: "Mortgage applications down as purchase demand falls" - The Mortgage Bankers Association reported today that mortgage purchase applications tanked over 8% from week to week for the week ending Feb 10. That's a real data sample of what's going on in the real economy, as opposed to the happy prozac-induced "sentiment" reading. It's like looking outside and seeing a bright blue sky and sunshine and then stepping outside without a coat on and discovering that it's 10 degrees...Ironically, we are starting to head into the part of the housing seasonality in which purchases should be increasing, not decreasing. Call me insane, but with mortgage rates at record lows and median pricing hitting new lows every month, isn't demand supposed to be increasing?

The other bubble that is starting to lose air is the Treasury market bubble. I've been commenting for quite some time that eventually China/Asia is going to start aggressively reducing its exposure to U.S. Treasuries. Of course, like everything else I was a bit early. But over the last year China has reduced its exposure by $60 billion. This is exceeded only by Russia's dumping $63 billion. Of course, Russia has cut its exposure by nearly 50% in the last 12 months. Eventually we'll see China show a 50% reduction as well. But that would mean selling over half a trillion in Treasuries. The question is, how will the Government finance its massive projected spending deficit (i.e. the debt ceiling is already going to be breached two months earlier than originally projected back in September per Obama AND per this blog way before Obama admitted it) if China reduces its investment in Treasuries by over half a trillion? If you want that answer, see the opening quote.

A lot of analysts/bloggers have said in the past that even though China may show an occassional month to month reduction in Treasury holdings, they are likely replacing these sales by buying them through UK banks. Not to lift my leg on this view, which I never placed credence in anyway, but China unloaded a massive $30 billion in December and the UK banks unloaded another $9 billion...LINK The fact of the matter is that, given that interest rates are at historical lows and have nowhere to go but up - which means that Treasury bond prices have nowhere to go but down - the sane, rational investor would logically not want to own any Treasuries except maybe T-bills. The question is, where do you put your money? Again, see the quote at the top of the page.

Finally, I was chatting with a friend of mine yesterday evening who happens to have probably 20-30% of his net worth in physical gold/silver and GLD. He commented that it seems like "you goldbugs who have gone all-in with gold/silver/miners" are cheering for the demise of our system because you'll make a lot of money on your holdings. I almost fell of my bar stool. First and foremost, if the reasons we ultimately own physical gold and silver fully materialize, yes our "investment" portfolio will soar in value. But, quite frankly, it also means it won't do us much good because there's a "Mad Max/The Road" situation going in the world at large. It would be insane to be cheering for that.

The reason the people who "get it" have 90% of the their investibles in gold/silver/mining stocks is that our Central Banks and Government leaders have given us a "Hobson's choice." A Hobson's choice is when you are given a free choice but only one option is offered. It implies that you only have one option and that option is likely not a desired option. It's a no-opton "choice." To put that in the context of why goldbugs have chosen the optional non-option of going "all in" in the metals sector, see the opening quote. In other words, for everyone not substantially invested in physical gold and silver (not paper ETFs), the only choice is complete wealth destruction.

21 comments:

Hey Dave you had your sports bubble in Denver with Tebow. We have ours in new York with Lin. Thank God we have something like this to keep us distracted from the BS that's going on in the world. BTW the Knicks will rise the way PMs will. There is a strong correlation. Mark my words.

Great post. I have asked myself ... as I stack silver, food and ammo ... am I hoping for Mad Max? The answer is No, my lifespan will vastly diminish, as will my childrens'. But I feel like I have no choice but to prepare for the worst, so I learn combat shooting when I'd rather be shooting pictures of the kids. *sigh*

@ "He commented that it seems like "you goldbugs who have gone all-in with gold/silver/miners" are cheering for the demise of our system because you'll make a lot of money on your holdings." ...the gold bugs did not create this....the fiat, debt bubble, oligarch crony capitalistic system did...blame mark to fantasy, saver annihilation via zirp, 2 tiered legal system, etc....maybe his greatest worry is that his allocation is too low?

With one and a half million (1.5 million) American children now homeless, reporter Hilary Andersson meets the school pupils who go hungry in the richest country on Earth. From those living in the storm drains under Las Vegas to the tent cities now springing up around the United States, P a n o r a m a finds out how the poor are surviving in America and asks whatever happened to the supposed 'government' and the Real People in charge - those who you 'don't see' pulling on the strings; and their vision and welfare for the country.

Could this be a form of 'Social cleansing' without the need of war or disease inflicted by the orchestrators - simply a controlled bout of poverty? Or is this the forced education that only condition children to know only a certain amount of knowledge that can only ever see them progress in working environments such as confined offices within the 'Human Zoo' qualities within the desperately overcrowded cities.

Why are our children not educated properly - to be able to survive communally with real craft and building skills? Is the social mobility (as in other 'rich countries' such as the UK) only fairing the rich; the wealthy and the 'clever elite'; the white collar criminal, as per usual?

If after all this - Europe in chaos, banks and sovereign being downgraded left right and centre, BOE printing another 18% more, Bank of Japan chucking more money in, what more does the precious metal bull need??

Especially in the miners. If look at the graphs of each and every miner - HECLA - does that look like a bull to you. You can take Kinross, Barrick.

After all this - at the end of the 2008 crises one would have been better off doing the Buffet thing - invest for dividends and the return was higher.

Of course only physical Gold could have compensated somewhat. But anything else around this industry was for naught. Now the HUI is fighting the breakdown level - instead of the breakout.

I remember the wonderful man Embry saying that the shorts will get a religious experience and even Jim Sinclair saying - when HUI "broke out" at around 640 or so that you all could go in full to the metal.

Be careful what you wish for - the shorts are getting a religious experience but probably not the one Embry meant.

Despite these offensive raids, gold still posted an 11-percent year-over-year price gain in 2011, marking the 11th consecutive year the price had been up, a feat the venerable investment letter writer Richard Russell termed unprecedented in any significant asset class.

However, in spite of this exemplary performance over the past decade the vast proportion of society remains blithely unaware of what is unfolding in the gold and silver markets. This stems from many sources, the first being the relentlessly negative press from the mainstream media on the subject. How many times does the public have to be subjected to the views of the likes of Jon Nadler of Kitco and Jeff Christian of CPM Group, to name but two? They are not true analysts but purely and simply establishment propagandists whose sole purpose, in my opinion, is to provide disinformation to keep the unsuspecting public away from precious metals.

Then the anti-gold cartel, with its insidious paper raids, creates wild volatility and totally counterintuitive price action that further discourages all but the most knowledgeable and committed believers in the only real money, gold and silver.

In reality, to date, the public hasn't had a chance. Whenever they have stuck their toe in the water, almost without exception they have been burned as yet another raid knocked them out of the box. When that happens often enough, most people just give up and go away and that is exactly what has occurred.

in other words, what you've done is taken the traditional argument that what has been, will be. That if one gambles and speculates in the markets, they are better off than holding precious metals that currently obtains its value via suppressed paper prices and whose paper value is dependent on selling a gigantic amount of paper based on a finite amount of base precious metals ie. a fractional bullion banking system.

appreciate your opinion, but no thanks, i've stopped gambling/speculating and take the opposite approach, a full out 100% into physical metals.

Dave, Linsanity continues, and he only played about 28 min last night! These Knicks are a totally different team - he seems to get everyone involved...if he can limit his turnovers, drive left like he can to the right, and a bit stronger for post up defence, uh oh...interesting to see what happens when Carmelo comes back, he of the I want the ball in my hands 90% of the time variety...

Melo will urinate on Linsanity. He's not a team player and he's never been a team player. I think he's played about 5 minutes of total defense in his entire career. He's nothing but an uneducated narcissist who can do one thing - put the ball in the hoop. It's a shame because he played great defense for those 5 minutes. It was against LeBron and Melo usually played his best all-round ball when Denver played the Cavs.

John Embry: Our report which was written 7 ½ years ago revealed all sorts of chicanery in the gold market and we only used evidence which could be corroborated. Considerable additional evidence has piled up subsequently but two smoking guns are the repetitive counter intuitive price action and evidence of widespread clandestine leasing of western central bank gold.

Who are the ones that don’t like a free gold market and which objectives do they have in mind by preventing a free gold market?

John Embry: The western governments, their central banks and the allied bullion banks are the culprits. They view gold as a mortal enemy of the fiat currency system. Gold has been real money for centuries and every paper money system in history has ultimately collapsed. This drives them to continuously denigrate and manipulate gold.

Through which tools is the gold price “managed“?

John Embry: The worst damage occurs in the so-called paper gold market where derivatives, naked shorting, vicious margin hikes, etc. are employed to fleece the long side who don’t have as deep pockets. In addition, the western central banks have supplied the physical gold necessary to effect the plan through their leasing.

Recently, I was told by a former chairman of the Federal Reserve, Paul A. Volcker, that to his best knowledge “the U.S. has not intervened in the gold market for more than 40 years.“ (2) Do you think Mr. Volcker has the truth on his side?

John Embry: Mr. Volcker admitted that the U.S. had made a mistake by not intervening at one point in the gold market some 40 years, so to think that nothing has happened subsequently is extremely naïve. Technically he might be correct in the sense that swaps could have been employed and the intervention using U.S. gold could have been conducted by another party. Recently retired Fed Governor Kevin Warsh acknowledged U.S. gold swaps in correspondence with GATA just last year. (3)

Eric Arthur Blair aka George Orwell

"Hope" is not a valid investment strategy

Full Time Jobs Over Last 5 Years

Is Your Gold Missing?

Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

Epic Quote - "Jesse" Sent This To Me

"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title." - Anonymous

The Basic Fundamental Problem

What's the solution?

“THERE IS NO MEANS OF AVOIDING THE FINAL COLLAPSE OF A BOOM BROUGHT ABOUT BY CREDIT EXPANSION. THE ALTERNATIVE IS ONLY WHETHER THE CRISIS SHOULD COME SOONER AS THE RESULT OF A VOLUNTARY ABANDONMENT OF FURTHER CREDIT EXPANSION OR LATER AS A FINAL AND TOTAL CATASTROPHE OF THE CURRENCY SYSTEM INVOLVED.”

Ludwig von Mises – Austrian Economist (1881- 1973)

Quote Of The Month Courtesy of "Jesse"

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie? JR: In my opinion, yes, of course it is. Have you looked at it? They’ve changed their accounting several times in the past few decades. When housing was 20% to 25% of the CPI and housing was going up, they didn’t count it, saying rents weren’t going up, and then when home prices started going down, they counted it. It’s the same with many things. It’s staggering some of the tortuous reasoning that the BLS has used over the past 25 or 30 years. When the price of gasoline goes up, they say it’s not really going up because it’s better gasoline, better quality, therefore you’re getting more for your money. I mean, it’s endless, the stuff that they say and for some reason people sit there, although more and more people are catching on, and accept what the government says.

Priceless Quote From Richard Russell

On Larry Summers: This doofus practically ruined Harvard when he headed it. I can't think of a worse choice to be chief economic advisor. I wouldn't trust Summers to manage a Starbucks franchise.

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.

Quote of the Month

And very relevant in the context of yesterday's post about gold moving higher against all fiat currencies:

Just imagine what would happen if a mere ten percent of the money currently going into bonds were instead to go into gold. As in 1972, the real move has yet to begin.

- Murray Pollit, Pollit & Co.

A Picture Says It All...

www.moneyandmarkets.com

Golden ore samples produced by Eurasian Minerals

Undisclosed exploration site

The Next Reserve Currency?

1 oz. Chinese Panda

Guess who said this?

Rising prices of precious metals and other commodities are an indication of a very early stage of an endeavor to move away from paper currencies...What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment.

-Alan Greenspan, 9 Sep 2009

THIS is what REAL money looks like

1 oz. Gold Eagles

Alan Greenspan said what?

“Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”

From "Gold and Economic Freedom" a 1966 Essay by Alan Greenspan

About Me

I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for a large bank. I have an MBA from the University of Chicago, with a concentration in accounting and finance.
Currently I co-manage a precious metals and mining stock investment fund in Denver.
My goal is to help people understand and analyze what is really going on in our financial system and economy.